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Romanian MoF should focus on lower expenditures…

The new Minister of Finance, Bogdan Dragoi, presented yesterday his priorities for the length of his mandate. Here are the first three:

The number one priority is to ensure a sustainable economic growth.

Another priority is structural funds accession.

Until now the Ministry of Finance has focused on bringing sustainability to public expenditures but from now on we will focus on increasing public revenues.

The first two are just political propaganda. However, the third one raises few interesting issues. My main problem is with the obsession, or at least the appearance of, of the Romanian Governments with increasing public revenues. Usually this claim is inserted in the official speech right after the speaker prophets his/her allegiance to lower government expenditures. As usual the data shows something else. It shows that the only reasons Romanian governments want to increase revenues is to finance higher and higher expenditures.

Here is the data.

The first graph shows public expenditures and revenues as percentage of GDP. From this graph it does not look to me that Romanian Governments since 2005 showed any concern for public expenditures. For all the talk about fiscal consolidation the data shows public expenditures increasing as percentage of GDP from 33% in 2004 to 39% in 2010.

Of course some critics will quickly point out that looking at the data in percentage of GDP could be misleading. Not necessarily. Faster GDP increase between 2006 to 2008 was understanding the expenditures while the 2009 to 20011 slower increase overstated them . But to put this concern to rest here is a graph looking at expenditures and revenues in billions of RON. The real data if you will. As you can see the impression that we got from the previous graph is mirrored by the evidence in the second graph.

I wrote this post because I was uneasy with more “efforts” from the Romanian government to increase their revenues. As those graphs show the problem is with increasing expenditures not with revenues. The efforts of our public officials should be focusing on cutting public expenditures which have increased even during the recessionary period, albeit at a lower pace.

So, if I am allowed to give a small piece of advice to our new Ministers of Finance is to put on top of his priority list lower expenditures and lower taxes and leave the “revenues” to the economy to spend as it pleases.